In Brazil, A Once-High-Flying Economy Takes A Tumble | KUOW News and Information

In Brazil, A Once-High-Flying Economy Takes A Tumble

Jan 14, 2015
Originally published on January 14, 2015 6:45 am

It was a terrible Christmas season for stores in Brazil. For the first time in more than a decade — since 2003 — sales went down.

Roberta Pimenta owns a small shop selling children's clothes at the Butanta mall in Sao Paulo, which is aimed squarely at the middle-class shoppers who live in the area.

"It was the worst drop in sales since I've had this store," Pimenta says. "In seven years it was the worst year I had. And every year you have a 10 percent increase of employees' salary, 10 percent increase in the rent, 10 percent in everything, so it is horrible."

Pimenta says sales haven't picked up since the holidays. She has lost money this year, as well.

Back in the early and mid-2000s, Brazil was flying high. There was a boom in easy credit in the country, and the creation of an avid consumer class. Global investors were putting their money in Brazil, running away from Europe and the U.S., which had been sliding into the Great Recession around that time. And China was buying a lot of what Brazil was selling — soybeans and other commodities.

Today the story is very different, says Luiz Carlos Lemos Jr., an economist at MacKenzie University, a Presbyterian college in Brazil named for its American founding donor.

"Looking in the short term, the expectation is that we will have a tough economy," Lemos says. "There won't be much consumption, much growth, no better income distribution and we will have an inflation that will be exploding over our heads."

China isn't buying as much, international investors are putting their money back into the recovering U.S. and Brazilians have taken on a lot of debt. And prices there are sky-high: An iPhone 6, for example, costs nearly $1,800.

The one bright spot had been that, despite slowing growth, unemployment has remained low. But that might be changing.

Take car sales, for instance. They, too, fell in 2014 — down 7 percent for the year, and now layoffs are following. Thousands of people showed up this week in Sao Paulo to protest hundreds of firings at some of the region's biggest car factories. Workers are also on strike at Volkswagen, where jobs have just been cut.

Umberto Panini, a mechanic who works at Volkswagen, still has a job but admits he is worried.

"It would worry anyone," he says in his family's small townhouse close to the factory. "We feel insecure. It makes us not do certain things we might do because we are worried about money."

He and his wife, Michele, just had a daughter. Michele lost her job as a credit analyst right before giving birth, so they are living on one income — about $3,000 a month, a pretty good salary in Brazil.

They say that this year instead of traveling abroad — in previous years, they've been to Spain and Chile — they will be vacationing inside the country. The Brazilian currency's slide has made travel less affordable.

In the past decade, the economic boom in Brazil lifted millions of people out of abject poverty — incomes rose, so did standards of living and inequality dropped. But in previous downturns, there has been hyperinflation and even real privation.

Panini and his wife say they will be a little more cautious with their money now. But they own a house and a car and remain optimistic about their prospects — and Brazil's.

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Just a few years ago, the booming Brazilian economy was the darling of the business world. Then last year, Brazilians were shocked to find their country just barely avoiding a recession, especially when they started to feel the pinch at work and at home as the supercharged economy slowed. NPR's Lourdes Garcia-Navarro reports from Sao Paulo.

LOURDES GARCIA-NAVARRO, BYLINE: It was a terrible Christmas season for stores in Brazil. For the first time in over a decade, since 2003 actually, sales went down. Roberta Pimienta owns a small shop selling children's clothes at the Butanta mall in Sao Paulo. The mall is aimed squarely at middle-class shoppers who live in the area.

ROBERTA PIMIENTA: (Speaking Portuguese).

GARCIA-NAVARRO: "It was the worst drop in sales since I've had this store," she says. "In seven years, it was the worst year I've ever had," she says.

Back in the early and mid-2000s, Brazil was flying high. Part of the reason had to do with a boom in easy credit and the creation of an avid consumer class. Also global investors put their money in Brazil, running away from ailing Europe and America, regions that were going through the Great Recession. Finally, China was buying a lot of what Brazil was selling - soybeans and other commodities. Today, the story is very different. Luis Carlos Lemos is an economist at Brazil's Mackenzie University.

LUIS CARLOS LEMOS: (Speaking Portuguese).

GARCIA-NAVARRO: "Looking at the short term, the expectation is that we will have a tough economy. There won't be much consumption, much growth, no better income distribution and we will have inflation that will be exploding over our heads," he says.

China isn't buying as much, international investors are putting their money back into the recovering U.S., and people here have taken on a lot of debt. Prices are also sky-high. The IPhone 6 costs almost $1,800 in Brazil. The one bright spot had been that despite slowing growth, unemployment had remained low. But that might be changing. Let's look at car sales. They, too, fell in 2014, down 7 percent in Brazil for the year. And when sales fall, layoffs often follow.

(SOUNDBITE OF PROTEST)

GARCIA-NAVARRO: This is audio from YouTube from a march held this week in Sao Paulo where thousands of people showed up. They were protesting hundreds of firings at some of the region's biggest car factories. Workers are also on strike at Volkswagen, where jobs have just been cut. Umberto Panini is a mechanic who works at Volkswagen. He still has a job, but he admits he's worried.

UMBERTO PANINI: (Speaking Portuguese).

GARCIA-NAVARRO: "It would worry anyone," he tells me in their small townhouse close to the factory. "We feel insecure. It makes us not do certain things we might do otherwise because we are worried about money," he says.

He and his wife, Michele, have just had a daughter. Michele lost her job as a credit analyst right before giving birth, so they are living on one income about $3,000 a month, which is a pretty good salary in Brazil. When I asked them what things are different, they say this year instead of traveling abroad - in previous years, they have been to Spain and Chile - they will be vacationing inside the country.

The Brazilian currency's slide has made travel less affordable, and this is the thing. In the past decade, the economic changes here lifted millions of people out of abject poverty. Incomes rose. So did standards of living. Inequality dropped. In previous downturns, there's been hyperinflation and even real privation in Brazil. This time, Umberto Panini and his wife say they will be a little more cautious. But they own a house. They have a car. They remain optimistic about their - and Brazil's - prospects. Lourdes Garcia-Navarro, NPR News, Sao Paulo. Transcript provided by NPR, Copyright NPR.